Financing for Development in the Era of COVID-19 and Beyond Initiative
Meeting of Heads of State and Government on the International Debt Architecture and Liquidity
Statement by Hon. Ajith Nivard Cabraal, State Minister of Money & Capital Market and State Enterprise Reforms of the Democratic Socialist Republic of Sri Lanka
Monday, 29 March 2021
In the very limited time that is available to me, let me make a few observations.
First, the COVID situation made many countries vulnerable to debt. And at that time, it is my view that multilateral institutions, such as the IMF, and the World Bank should come forward and provide a debt moratorium to emerging nations, so that there is at least an interval of one year for them to get their debt situations into a better model.
At the same time, we got to understand that global crises need global responses, and that is why an across the board moratorium to the developing nations and the emerging nations would have been very helpful to ensure that all countries would stay healthy in the face of this global crisis.
The second is the rating agencies. The fact that the rating agencies pretend that there is no such crisis. They apply the same yardsticks that have been applied in normal times. In a crisis situation when there is a new emerging set of rules as well as a set of developments, they should have been conscious of these situations and then flavored their rating of countries using that background knowledge as well. And that was a big drawback, and additional pressure was put across emerging nations during that time.
Let me make the final point, which is more universal. That is when countries which are advanced make investments in countries which are less advanced, it is called a loan. But, when countries which are less advanced give loans to those countries which are more advanced, it is called an investment. I think this is deliberately done in order to provide a new arrangement in the global context of investments and loans. The reason for that, is that often investments attract very low interest rates, whereas the loans attract very high interest rates. That is, I think, something that we should address carefully. And why is it that countries have to pay 6,7 percent interest for the investments that are being made by more advanced countries, and when they make investments the less advance countries make investments- they will receive less than 1 percent as interest.
So, this dichotomy needs to be addressed carefully in the context of global reserve management global reserves which are generally retained by countries to show themselves off as credit worthy countries. And I think it is time that this was addressed in a universal manner in order to bring equity and clarity to the situation.